On 15 July 2015, the Supreme People’s Court in China (the “SPC“) issued a binding judicial interpretation on how lower courts are to handle various issues arising out of the CIETAC split (the “SPC Reply“). The interpretation responded to requests from the Shanghai High People’s Court, the Jiangsu High People’s Court and the Guangdong High People’s Court. The SPC Reply becomes effective today, 17 July 2015.
The SPC Reply confirms the position lower courts must take regarding: (1) the validity of arbitration agreements; and (2) potential challenges to arbitral awards in setting aside or enforcement proceedings. In essence:
- If an arbitration agreement referring to the “CIETAC Shanghai Sub-Commission” or the “South China Sub-Commission” was concluded before the former CIETAC sub-commissions renamed themselves as a result of the CIETAC split, then the newly-formed Shanghai International Economic and Trade Arbitration Commission/Shanghai International Arbitration Centre (“SHIAC“) or South China International Economic and Trade Arbitration Commission/Shenzhen Court of International Arbitration (“SCIA“) will have jurisdiction over those disputes.
- In all other cases, CIETAC will retain jurisdiction over disputes submitted under arbitration agreements referring to CIETAC sub-commissions.
The SPC’s interpretations seek to take into account the historical relationship between CIETAC and its former sub-commissions, whilst also upholding parties’ intentions and promoting China as an arbitration-friendly jurisdiction. The SPC Reply ends the uncertainty on jurisdiction issues arising from the CIETAC split.
In August 2012, the former Shanghai and South China (Shenzhen) sub-commissions broke away from CIETAC. These former sub-commissions subsequently changed their names to SHIAC on 8 April 2013 and SCIA on 22 October 2012 (the “Name Change“).
Since the Name Change, there has been uncertainty regarding arbitration agreements that refer to the former sub-commissions as the administering institution. This has led to numerous applications to resist enforcement of awards rendered by competing institutions in Shanghai and Shenzhen.
In order to address this uncertainty, the SPC issued a notice in 2013 requesting all lower courts hearing cases arising out of the CIETAC split to submit the matter for judicial review by the SPC before making a decision (the “SPC Notice“) (See our post of 20 December 2013).
After the SPC Notice, the Shanghai No. 2 Intermediate People’s Court made the first civil ruling on the validity of an arbitration agreement concerning the Shanghai sub-commission of CIETAC on 31 December 2014. This was followed by the Shenzhen Intermediate Court’s civil ruling on the validity of an arbitration clause concerning South China sub-commission of CIETAC on 6 January 2015 (See our posts of 13 January 2015). A number of civil rulings have been issued by the courts since then, but as these do not create binding precedents in the PRC, some uncertainty has remained.
The SPC Reply
The SPC Reply clarifies the jurisdiction of the relevant arbitration commissions where the parties have agreed to submit their disputes to the “CIETAC Shanghai sub-commission” or the “CIETAC South China sub-commission” (a “Relevant Arbitration Agreement“). There are three key points:
- If the parties have entered into a Relevant Arbitration Agreement before the Name Change, then the SHIAC or the SCIA will have jurisdiction over any disputes. Accordingly, if a party subsequently applies to court to invalidate the arbitration agreement, set aside the arbitral award or resist the enforcement of the arbitral award on the ground that SHIAC or SCIA has no jurisdiction, such application will not be supported.
- If the parties have entered into a Relevant Arbitration Agreement on the date of or after the Name Change, but before 17 July 2015, CIETAC will have jurisdiction over any disputes. However, if the Claimant submits the disputes to SHIAC or SCIA, and the Respondent does not raise any objection, the courts should not support a party’s later application to set aside or resist enforcement of an arbitral award on the ground that SCIA/SHIAC had no jurisdiction.
- If the parties have entered into a Relevant Arbitration Agreement on or after 17 July 2015, CIETAC will have jurisdiction over any disputes.
Under Article 13(2) of the Interpretation of the Supreme People’s Court on Certain Issues concerning the Application of the PRC Arbitration Law (最高人民法院关于适用《中华人民共和国仲裁法》若干问题的解释) (Fa Shi  No. 7) and Article 3 of the Supreme People’s Court’s Reply to Several Questions Concerning Recognition of the Validity of Arbitration Agreements (最高人民法院关于确认仲裁协议效力几个问题的批复) (Fa Shi  No. 27), if a party applies to a court to determine the validity of an arbitration agreement or to set aside an arbitral award after an arbitration institution makes a decision on the arbitration agreement, the court should dismiss the application.
However, in relation to the jurisdiction issue caused by CIETAC split, the SPC Reply clarifies that, even after the relevant arbitration commission has confirmed the validity of the arbitration agreement and made a decision on jurisdiction, a Respondent may still apply to the court to determine the validity of the arbitration agreement provided it does so before the first arbitral hearing. In such cases, the court should accept the Respondent’s application and make a civil ruling.
The SPC Reply also specifies that, wherever CIETAC, SHIAC or SCIA have accepted disputes before 17 July 2015 without following points 1 to 3 above, the court should not support a party’s application to set aside or resist enforcement of the arbitral award on the ground that the arbitration commission has no jurisdiction. In that sense, the SPC Reply does not have retrospective effect. The one exception to this is if CIETAC and either of SHIAC or SCIA have accepted the same dispute before 17 July 2015, and a party applies to a court to confirm jurisdiction of either arbitration commission before the first arbitral hearing, then the court should make a civil ruling according to points 1 to 3 above. Otherwise, the arbitration commission that first accepted the dispute should have the jurisdiction.
For further information, please contact Justin D’Agostino, Jessica Fei, Brenda Horrigan, May Tai, Simon Chapman or your usual Herbert Smith Freehills contact.